Time for the FSA to act

Monday 11 October 2004 11:21 BST

THE timing of Judge Teresa Palacios's decision to pursue tax law violation charges against Banco Santander chairman Emilio Botin could not be any worse for the bank.

Coming as it does on the eve of next week's extraordinary general meeting of Abbey shareholders at Wembley, it is certain to raise questions among investors as to whether they should surrender independence to the £8.9bn Spanish offer.

Santander maintains that the latest tax case, which dates back to the 1980s, is insignificant and something of a grudge match. It also seeks to portray the judge involved as a maverick. Maybe. But Judge Palacios is considered a serious enough player to be one of the two independent arbiters looking into the 3/11 bomb outrages in Madrid.

Indeed, there is a long history of maverick judges daring to tread where others fear. It was the late Judge John Sirica, of the US District of Columbia, who was responsible for blowing the whistle on Watergate in 1973.

The future ownership of Abbey is particularly important given that it has an army of two million shareholders, most of whom also are customers.

They deserve some reassurance from the City regulator, the Financial Services Authority, that it is satisfied that the change of control is in the interests of consumers.

The FSA has two prime responsibilities in bank regulation. It must ensure that the directors pass the 'fit and proper' test and that consumer interests are protected.

The last time a British bank was taken over by a foreign enterprise, when Hongkong and Shanghai Banking Corporation bid for the Midland Bank in 1992, the Bank of England, then in charge of supervision, laid down strict rules. This included the movement of domicile from Hong Kong (then still a Crown Colony) to London together with new management arrangements.

There is a tradition, even in Europe, of officials and executives standing aside if there is a prosecution in the offing. Jean-Claude Trichet, now president of the European Central Bank, was not able to take up his posting until the French courts had cleared him of charges over a banking scandal at Credit Lyonnais.

Santander and Botin ought at least to be considering whether such a step would be appropriate. After all, even if the all-powerful Emilio stepped down there are still a posse of other relatives - three at the last count - peppered through the board, even though the family controls just 2.8% of the equity.

This cannot be an ownership structure for a British bank which fills the FSA with great confidence.

Life struggle

THE path to flotation for Standard Life (in which I am a policyholder) is proving far from smooth. Fundamental shifts in the savings market have changed the economics of life funds as they have for many corporate pension funds.

Investment managers are having to learn to live with a new low inflation, low investment return environment in which many policyholders are living much longer.

The group's response is to take a meat axe to jobs and costs. This has saved £87m so far this year. But it is making plain that this will not be enough if the group is to be rebalanced to reflect the shrinking size of the life fund compared to the business as a whole.

Policyholders, like employees, are being asked to take the hit with a further reduction in bonus rates.

The Edinburgh-based insurer is also seeking to draw a financial line under the endowment mortgage scandal.

At present it is providing £100m a year to fund a promise to make good mortgage endowment shortfalls. After the end of next year, such claims will be scaled back.

The shrinkage of Standard Life, which once bestrode the financial community like a colossus, is humiliating. But it is having to take the tough decision now against a background of tough new realistic accounting standards - which it initially sought to resist - and to strengthen its ability to raise capital through conversion to plc status.

Brown campaign

WHILE Tony Blair is busy grandstanding in Ethiopia, Gordon Brown is pressing on with his attempt to release aid flows from the European Union to developing countries.

He believes too much cash at present is going to middle income nations, which don't need it, rather than the poorest nations.

Among his demands is that the EU nations join Britain in forgiving their share of multinational debt to low income nations.

Brown has already gone a long way to persuading the United States (election year politics notwithstanding) to join his initiative.

If he can bring the EU aboard it will be a huge advance for poverty alleviation.